Commercial mortgage rates fluctuate with market conditions, but are generally tied to the indices (or “indexes”) set by the federal government – such as the LIBOR, Prime, Swap, and Treasury indices. Most of these Indices also have multiple time frames that will also be chosen by your lender, such as 6 Month LIBOR, 10 Year Treasury, etc. It will also come with an additional “spread” of basis points over the designated term of the loan.

Spreads are determined by the lenders in’ network, and vary depending on the selected loan product and term. They are also affected by factors such as the property type, property class, location, income, and borrower credit. Generally, spreads range between 200 and 250 basis points (2% to 2.5%).

How do spreads work?

For example, a lender may offer you a Freddie Mac multifamily loan with a spread of 225 basis points over the 10 Year Treasury Index rate of 2.37%. That means the  effective rate would be 4.62%, based on 2.25% + 2.37%.